Markets

Time is money in Nabors strategy

One investor is turning time into money with Nabors Industries.

optionMONSTER's tracking programs detected the sale of 6,796 September 17 calls for $1.73. An equal number of March 16 calls was bought at the same time for $1.13, but volume was below open interest at that strike.

This indicates that the investor closed a short position and rolled it forward in time. He or she probably owns shares in the contract-drilling company and is using the options as part of a covered call strategy. (See our Education section)

It's interesting that the investor has chosen in-the-money strike prices because that significantly limits their profits and risks. The result is a position more akin to a fixed-income investment than a stock trade.

NBR rose 3.36 percent to $17.24 on Friday and is up 19 percent so far this year.

The option trade generated an immediate credit of $0.60, and the trader now has the right to sell the stock for $1 more. The investor must also remain in the position for an additional six months. That $1.60 translates into a yield of 9.3 percent--not bad for half a year in a climate when 10-year Treasuries pay less than 2 percent. The investment will also receive two dividend payments totaling $0.08.

Of course there is more risk because the trade will lose money if NBR drops below $17. But the investor may not consider that a big danger because the company trades for less than its book value and activity has been increasingly bullish in the energy sector.

Total option volume was 8 times greater than average in the session.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

NBR

Other Topics

Options

Latest Markets Videos